• Risk sentiment has strengthened on China's return to market amid PBoC liquidity operations and Evergrande developments
• Evergrande’s main unit Hengda Real Estate will make domestic coupon payments due tomorrow; offshore payments unclear, sources
• Equities are firmer with Europe marginally outperforming ahead of the US entrance with attention on the FOMC, ES +0.3%
• FX features a softer but contained DXY with debt equally uninspiring and perhaps awaiting direction from the Fed
• US House voted 220 vs 211 to pass the bill to fund the government through to December 3rd and suspend the debt limit until end-2022
• Looking ahead, highlights include US Existing Home Sales, FOMC rate decision and Fed Chair Powell press conference

ASIA

Asian equity markets traded mixed as caution lingered ahead of upcoming risk events including the FOMC, with participants also digesting the latest Evergrande developments and China’s return to the market from the Mid-Autumn Festival. ASX 200 (+0.3%) was positive with the index led higher by the energy sector after a rebound in oil prices and as tech also outperformed, but with gains capped by weakness in the largest-weighted financials sector including Westpac which was forced to scrap the sale of its Pacific businesses after failing to secure regulatory approval. Nikkei 225 (-0.7%) was subdued amid the lack of fireworks from the BoJ announcement to keep policy settings unchanged and ahead of the upcoming holiday closure with the index only briefly supported by favourable currency outflows. Shanghai Comp. (+0.4%) was initially pressured on return from the long-weekend and with Hong Kong markets closed, but pared losses with risk appetite supported by news that Evergrande’s main unit Hengda Real Estate will make coupon payments due tomorrow, although other sources noted this is referring to the onshore bond payments valued around USD 36mln and that there was no mention of the offshore bond payments valued at USD 83.5mln which are also due tomorrow. Meanwhile, the PBoC facilitated liquidity through a CNY 120bln injection and provided no surprises in keeping its 1-year and 5-year Loan Prime Rates unchanged for the 17th consecutive month at 3.85% and 4.65%, respectively. Finally, 10yr JGBs were flat amid the absence of any major surprises from the BoJ policy announcement and following the choppy trade in T-notes which were briefly pressured in a knee-jerk reaction to the news that Evergrande’s unit will satisfy its coupon obligations tomorrow, but then faded most of the losses as cautiousness prevailed.

PBoC injected CNY 60bln via 7-day reverse repos and CNY 60bln via 14-day reverse repos with the 7-day reverse repo rate kept at 2.20% and 14-day reverse repo rate kept at 2.35%, for a net daily injection of CNY 110bln. (Newswires) PBoC set USD/CNY mid-point at 6.4693 vs exp. 6.4637 (prev. 6.4527)

• PBoC 1-Year Loan Prime Rate (Sep) 3.85% vs Exp. 3.85% (Prev. 3.85%)
• PBoC 5-Year Loan Prime Rate (Sep) 4.65% vs Exp. 4.65% (Prev. 4.65%)

EU and US are seeking increased enforcement of investment screening rules and trying to keep tech from being misused to threaten security and human rights, which are part of efforts to curb China risks. (Newswires)

US Climate Envoy Kerry that he is absolutely delighted by Chinese President Xi's announcement that China will not build any more coal-fired power plants abroad, while he added it is a great contribution and good start to achieve success at Glasgow climate summit. (Newswires)

China Evergrande (3333 HK) main unit Hengda Real Estate will make coupon payments for onshore bonds due tomorrow after negotiating with bondholders, although other sources noted the coupon payment refers to an onshore bond payment of around USD 36mln and there was no mention of the offshore bond payments valued at USD 83.5mln that are also due tomorrow. (Newswires/Twitter)

Desks are circulating a piece from Asia Markets overnight suggesting that sources near the Chinese Government are of the view that a deal that will see Evergrande restructured into three separate entities is currently being finalised by the CCP. (Asia Markets) Note, we cannot verify the credibility of the sources and are not overtly familiar with "Asia Markets". However, we are making clients aware that such an article is doing the rounds.

IMF Chief Economist Gopinath said they are following developments regarding China Evergrande closely and that downside risks associated with Evergrande could have implications for China's economic activity and financial stability, while she added that China has tools and policy space to prevent Evergrande situation from turning into a systemic crisis. (Newswires)

BoJ maintained policy settings as expected with the bank rate kept at -0.10% and 10yr JGB yield target at around 0% with the decision on Yield Curve Control made by 8-1 vote as Kataoka remained the lone dissenter. BoJ cut the assessment of output and exports in which it noted that exports and output continues to rise although are temporarily impacted by supply constraints, while it reiterated that Japan's economy remains in a severe state but is picking up as a trend and is likely to recover as impact of pandemic eases. Furthermore, it stated the overseas economy is recovering as a whole and that capex is picking up but with some sectors seeing weakness and that consumption continues to stagnate. (Newswires)

US

US House voted 220 vs 211 to pass the bill to fund the government through to December 3rd and suspend the debt limit until end-2022, although it was also reported that US Senate Republicans unveiled a stopgap bill with no debt limit increase. Furthermore, Politico noted that default and shutdown odds are said to have increased with the GOP buckling up to block the increase in the debt limit.(Newswires/Politico)

US President Biden will meet with House Speaker Pelosi and Senate Majority Leader Schumer on Wednesday.. (Newswires/Twitter)

UK/EU

UK PM Johnson and US President Biden discussed China and Russia during their meeting, while they also discussed the importance of European partners in the Indo-Pacific. Furthermore, President Biden talked a little about trade with UK PM Johnson in which he stated that he does not want to see a closure of Irish borders and noted a trade agreement with the UK will continue to be discussed. In related news, the UK is reportedly hoping on joining the USMCA trade agreement if it is unable to secure a direct FTA. (Newswires/FT)

The Times' shadow MPC unanimously agrees that the BoE should end its QE programme early and begin preparing for an increase in interest rates. (Times)

ECB's Muller says the ECB will discuss bolstering APP when PEPP comes to an end. (Newswires)

German IFO Institute lowers its 2021 GDP forecast to 2.5% vs. prev. 3.3%, raises 2022 GDP forecast to 5.1% vs. prev. 4.3%

• Association of Private Sector Banks forecasts 2021 inflation at 2.1% and 2022 at 1.6%

GEOPOLITICS

The Arab Alliance notes that "Air defenses intercept and destroy two car bombs launched by Houthi militias towards Khamis Mushit" (via translation), according to Sky News Arabia. (Twitter)

Russian Chief of General Staff Gerasimov and his US counterparts have met in Helsinki, via Ria. (Newswires)

EQUITIES

European equities (Stoxx 600 +0.5%) trade on a firmer footing in the wake of an encouraging APAC handover. Focus overnight was on the return of Chinese participants from the Mid-Autumn Festival and news that Evergrande’s main unit, Hengda Real Estate will make coupon payments due tomorrow; however, we await indication as to whether they will meet Thursday’s offshore payment deadline as well. Furthermore, the PBoC facilitated liquidity through a CNY 120bln injection whilst keeping its 1-year and 5-year Loan Prime Rates unchanged (as expected). Note, despite gaining yesterday and today, thus far, the Stoxx 600 is still lower to the tune of 0.7% on the week. Stateside, futures are also trading on a firmer footing ahead of today’s FOMC policy announcement, at which, market participants will be eyeing any clues for when the taper will begin and digesting the latest dot plot forecasts. Furthermore, the US House voted to pass the bill to fund the government through to December 3rd and suspend the debt limit to end-2022, although this will likely be blocked by Senate Republicans. Back to Europe, sectors are mostly firmer with outperformance in Basic Resources and Oil & Gas amid upside in the metals and energy complex. Elsewhere, Travel & Leisure is faring well amid further upside in Entain (+6.1%) with the Co. noting it rejected an earlier approach from DraftKings at GBP 25/shr with the new offer standing at GBP 28/shr. Additionally for the sector, Flutter Entertainment (+4.1%) are trading higher after settling the legal dispute between the Co. and Commonwealth of Kentucky. Elsewhere, in terms of deal flow, Iliad announced that it is to acquire UPC Poland for around USD 1.8bln.

India is reportedly likely to block Chinese investors from purchasing shares in Life Insurance Corp's IPO, according to sources. (Newswires)

FX

NZD/AUD - Trade remains volatile as this week’s deluge of global Central Bank policy meetings continues to unfold amidst fluctuations in broad risk sentiment from relatively pronounced aversion at various stages to a measured and cautious pick-up in appetite more recently. Hence, the tide is currently turning in favour of activity, cyclical and commodity currencies, albeit tentatively in the run up to the Fed, with the Kiwi and Aussie trying to regroup on the 0.7000 handle and 0.7350 axis against their US counterpart, and the latter also striving to shrug off negative domestic impulses like a further decline below zero in Westpac’s leading index and an earthquake near Melbourne. Next up for Nzd/Usd and Aud/Usd, beyond the FOMC, trade data and preliminary PMIs respectively.

DXY/CHF/EUR/CAD - Notwithstanding the overall improvement in market tone noted above, or another major change in mood and direction, the Dollar index appears to have found a base just ahead of 93.000 and ceiling a similar distance away from 93.500, as it meanders inside those extremes awaiting US existing home sales that are scheduled for release before the main Fed events (policy statement, SEP and post-meeting press conference from chair Powell). Indeed, the Franc, Euro and Loonie have all recoiled into tighter bands vs the Greenback, between 0.9250-26, 1.1739-17 and 1.2831-1.2770, but with the former still retaining an underlying bid more evident in the Eur/Chf cross that is consolidating under 1.0850 and will undoubtedly be acknowledged by the SNB tomorrow. Meanwhile, Eur/Usd has hardly reacted to latest ECB commentary from Muller underpinning that the APP is likely to be boosted once the PEPP envelope is closed, though Usd/Cad is eyeing a firm rebound in oil prices in conjunction with hefty option expiry interest at the 1.2750 strike (1.8 bn) that may prevent the headline pair from revisiting w-t-d lows not far beneath the half round number.

GBP/JPY - The major laggards, as Sterling slips slightly further beneath 1.3650 against the Buck to a fresh weekly low and Eur/Gbp rebounds from circa 0.8574 to top 0.8600 on FOMC day and T-1 to super BoE Thursday. Elsewhere, the Yen has lost momentum after peaking around 109.12 and still not garnering sufficient impetus to test 109.00 via an unchanged BoJ in terms of all policy settings and guidance, as Governor Kuroda trotted out the no hesitation to loosen the reins if required line for the umpteenth time. However, Usd/Jpy is holding around 109.61 and some distance from 1.1 bn option expiries rolling off between 109.85-110.00 at the NY cut.

SCANDI/EM - Brent’s revival to Usd 75.50+/brl from sub-Usd 73.50 only yesterday has given the Nok another fillip pending confirmation of a Norges Bank hike tomorrow, while the Zar has regained some poise with the aid of firmer than forecast SA headline and core CPI alongside a degree of retracement following Wednesday’s breakdown of talks on a pay deal for engineering workers that prompted the union to call a strike from early October. Similarly, the Cnh and Cny by default have regrouped amidst reports that the CCP is finalising details to restructure Evergrande into 3 separate entities under a plan that will see the Chinese Government take control.

RBA Assistant Governor Bullock said they are watching developments in the housing market and credit very closely, while they are also continually assessing if macro-prudential tightening is needed whereby macro-prudential rules should be targeted at risks arising from highly indebted borrowers. Furthermore, she stated that recent housing market strength is positive for the economy, but also noted risks to financial stability from housing could be increasing. (Newswires)

Magnitude 6.0 earthquake reportedly struck near Melbourne, Australia which shook buildings although no Tsunami warning was issued. (Newswires)

Notable FX Expiries, NY Cut:

• EUR/USD: 1.1675-85 (1.2BLN), 1.1700 (353M), 1.1720-30 (500M), 1.1745-50 (752M)
• USD/CAD: 1.2700 (812M), 1.2750 (1.8BLN), 1.2775 (725M), 1.2850-55 (734M)
• USD/JPY: 109.00 (625M), 109.45 (685M), 109.85-110.00 (1.1BLN)

FIXED

Bunds have not been unduly ruffled by a tepid German 15 year tap, but by the same token the core Eurozone debt future did not derive much leverage from ECB’s Muller flagging the prospect of an augmented APP to take the strain once the PEPP has ended. Instead, the Eurex range remains intact, -5 to -33 ticks on the day, and Gilts actually carved out a fresh Liffe intraday apex to get within a tick of parity at 127.48 before waning again, while US Treasuries are still hovering within overnight parameters awaiting US weekly mortgage applications and existing home sales before the culmination of this month’s FOMC meeting that comes with a new SEP and dot plots to supplement guidance and anything else Fed chair Powell divulges during the press conference and Q&A.

COMMODITIES

WTI and Brent are firmer this morning though once again fresh newsflow for the complex has been relatively slim and largely consisting of gas-related commentary; as such, the benchmarks are taking their cue from the broader risk tone (see equity section). The improvement in sentiment today has brought WTI and Brent back in proximity to being unchanged on the week so far as a whole; however, the complex will be dictated directly by the EIA weekly inventory first and then indirectly, but perhaps more pertinently, by today’s FOMC. On the weekly inventories, last nights private release was a larger than expected draw for the headline and distillate components, though the Cushing draw was beneath expectations; for today, consensus is a headline draw pf 2.44mln. Moving to metals where the return of China has seen a resurgence for base metals with LME copper posting upside of nearly 3.0%, for instance. Albeit there is no fresh newsflow for the complex as such, so it remains to be seen how lasting this resurgence will be. Finally, spot gold and silver are firmer but with the magnitude once again favouring silver over the yellow metal.

US Private Energy Inventory Data (bbls): Crude -6.1mln (exp. -2.4mln), Cushing -1.8mln, Gasoline -0.4mln (exp. -1.1mln), Distillate -2.7mln (exp. -1.2mln)

Iraqi oil minister claims Iraq will be able to produce 5mln BPD after OPEC+ restrictions elapse. (Newswires)